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2015 (11) TMI 921 - ITAT MUMBAI

2015 (11) TMI 921 - ITAT MUMBAI - TMI - Revision u/s 263 - Held that:- As before enhancing or annulling or modifying or cancelling the assessment while exercising his powers under section 263 of the Act, the Commissioner must record a finding of fact or of law that the order of the AO is erroneous and is also prejudicial to the interest. In the case in hand, this prerequisite condition has not been satisfied as the Commissioner after calling for the explanation from the assessee has failed to ma .....

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A.R. For the Respondent : Shri Sanjay Singh, D.R. ORDER Per Sanjay Garg, Judicial Member: The present appeal has been preferred by the assessee against the order dated 25.03.2010 of the Commissioner of Income Tax [hereinafter referred to as the CIT] relevant to assessment year 2005-06, passed under section 263 of the Act whereby he has annulled the assessment made u/s 143(3) of the Act by the Assessing Officer (hereinafter referred to as the AO) and has directed the AO for denovo assessment in t .....

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me was allowed by the Assessing Officer without any verification. (2) Assessee had claimed depredation on dies at the rate of 40% and same was allowed by the Assessing Officer in assessment without any examination, although the depreciation allowable as per the I. T. Rules was 25%. (3) The total depreciation allowable on motor car as per the details filed was ₹ 7,53,906/- whereas the assessee s claim of depreciation of ₹ 9,42,382/- was allowed without any verification. (4) The deduct .....

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ture incurred on tools and implements was concerned, the assessee was in the business of manufacture of automobile parts made of rubber and some of the raw materials used for production of automobile parts was of revenue nature and as such the same was debited in the profit and loss account. The assessee also relied upon the decision in the case of CIT vs. Mysore Spun Concrete Pipe (P) Ltd. 194 ITR 159 (Kar.) and CIT vs. Jagatjit Industries Ltd. 241 ITR 556 (Del.). In respect of depreciation on .....

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ny such donation. However, the assessee had given an amount of ₹ 601/- towards subscription to various persons at the time of festivals etc. and the same had rightly been claimed as business expenditure. It was also submitted before him that all the required details were submitted before the AO and the AO, after duly examining the accounts and records of the assessee, has passed the assessment order. 4. The Ld. CIT, after considering the submissions made by the Ld. A.R. of the assessee, ob .....

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fic finding as to whether the particular claim of the assessee was allowable or disallowable. However, no such finding was given by the AO. He, therefore, concluded that the claim of the assessee has not been allowed after proper verification. He, therefore, treated the assessment made by the AO as erroneous in so far as it was prejudicial to the interest of Revenue. He accordingly set aside the assessment with a direction to do it denovo. Being aggrieved by the order of the Ld. CIT, the assesse .....

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the interests of the revenue, he, may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. ……… 6. The sum and substance of the above reproduced section 263(1) can be summarized in the following points: 1) The Comm .....

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i) cancelling the assessment and directing a fresh assessment. 7. Now in the light of above words, we have to examine as to whether the order of the Ld. CIT is a valid order in the light of the above stated points/provisions of section 263 of the Act. In the case in hand, the assessee had submitted all the requisite details before the AO. It has been mentioned in the assessment order that the books of the accounts were produced and were subjected to test check. The case was discussed with the as .....

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re of Business activity 2. Details in respect of air freight, courier charges, donation, die & repairs, Insurance, electrical maintenance & repairs. 3. Details of factory maintenance and repairs, foreign agency commission, freight outward, tools and implements, machinery repairs, tour abroad etc. 4. Details in respect of business promotion. 5. Capital account of partners 6. Details of bank accounts held with account numbers and their respective balances 7. Photocopies of bills to be furn .....

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t of tools and implements and copies of bills etc. The Ld. A.R. of the assessee has further invited our attention to copies of the various other letters addressed to the AO to show that from time to time the AO called for various records which were duly submitted and the relevant explanation was given to the AO. After duly examining the records of the assessee, the AO proceeded to pass the assessment order. The Ld. A.R. has further invited our attention to the copy of letter dated 05.03.08 addre .....

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sment order dated 26.07.07, the AO perhaps sought to amend the order as he was of the view that the excess claim of depreciation on plant machinery has been allowed to the assessee. However, the assessee explained that he had made a correct claim. Pursuant to that no rectification order under section 154 was passed by the AO. The Ld. A.R. has further invited our attention to the notice issued by the Ld. CIT in relation to the proceedings under section 263 raising the following queries: i) You ha .....

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s allowed the same @40% as claimed in refund. iii) Depreciation on motor cars is claimed and allowed at ₹ 9,42,382/-. - However, as per the provisions of law, depreciation allowable is ₹ 7,53,906/- only. iv) Even though you have claimed deduction U/s.80-G for the donation of ₹ 601/- no valid receipt was submitted by you. Therefore, no deduction can be allowed on this payment. v) You have claimed depreciation on "Factory land & Building". For land, no depreciation .....

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g the items of claim disputed by the Ld. CIT. 10. As per the provisions of section 263 as enumerated above, after getting the explanation from the assessee, the Ld. CIT was supposed to examine the contention of the assessee. Before passing an order of modifying, enhancing or cancelling the assessment, he was supposed either to himself make or cause to make such an enquiry as he deems necessary. The words as he deems necessary , in our view, do not mean that the Ld. CIT is left with a choice eith .....

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bout the genuineness/validity of various claims to which the assessee had given a detailed reply. Once a point wise reply was given by the assessee, then a duty was cast upon the Ld. CIT to examine the reply of the assessee and form a prima-facie opinion as to whether the order of the AO was erroneous so far as it was prejudicial to the interest of Revenue. We further note that the Ld. CIT did not raise any query as to what enquiries were made by the AO before proceeding to pass the assessment o .....

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y not be a concluding opinion to hold that the order of the AO in his view was erroneous so far as it was prejudicial to the interest of Revenue. The opinion of the Commissioner that the AO had not made proper enquiries or verifications should be based on his objective satisfaction and not a substantive satisfaction from the assessment order. Merely because, the assessment order in question is not a detailed order and the AO has not mentioned item wise findings regarding the claims of the assess .....

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iction has been created in section 263 of the Act by the amendment made by Finance Act, 2015 w.e.f. 01.06.15 wherein it has been mentioned that where the Commissioner is of the opinion that the AO had passed the order without making enquiries or a claim has been allowed without enquiring into the claim or that the same is not in accordance with any order or direction or instruction issued by CBDT, that shall be deemed to be erroneous in so far as its prejudicial to the interest of Revenue. The s .....

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ing the validity or genuineness of the claims made by the assessee. He has simply opined that the AO had not made the necessary enquires. He has neither asked the assessee to show as to what enquiries were made by the AO nor himself has looked into the explanations submitted by the assessee. 14. Now coming to the various case laws relied upon by both the parties. 15. The Ld. D.R. has relied upon the following authorities to stress the point that if the Commissioner finds that there was a lack of .....

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. CIT (2013) 39 taxmann.com 105 (Mumbai - Trib.) 16. The Ld. A.R., on the other hand, has relied upon the following authorities to stress that there is a difference between lack of enquiries and inadequate enquiries. The Commissioner must give a finding of fact or of law that the order is erroneous so far as it is prejudicial to the interest of Revenue by making proper enquiries after seeking explanation from the assessee. (i) CIT vs. Sunbeam Auto Ltd. 227 CTR 133 (Delhi - HC) (ii) CIT vs. Vikas .....

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m that of the AO; where the AO has made enquiries in respect of the claim of the assessee, order cannot be said to be erroneous even if the details of enquiries made do not find mention in the assessment order. (i) CIT vs. Fine Jewellery (I) Ltd. (2015) 372 ITR 303 (Mumbai-HC) (ii) CIT vs. Ashish Rajpal (2010) 320 ITR 674 (Delhi-HC) (iii) CIT vs. Sunbeam Auto Ltd. (2011) 332 ITR 167 (Delhi-HC) (iv) CIT vs. Gabriel India (1993) 203 ITR 108 (Bombay-HC) (v) Grasim Ind. Ltd. vs. CIT (2010) 321 ITR 9 .....

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d by the Ld. Representatives of the parties. Firstly, we discuss the case laws relied upon by the Ld. D.R. There is no doubt that the Hon ble Karnataka High Court in the case of Infosys Technology (supra) has held that where the AO has not made it explicit as to the entitlement of a claim of the assessee, the Commissioner has the jurisdiction in directing the AO to make enquiries in the matter and give a specific finding in this respect. Further, in the case of Maithan International (supra) the .....

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ai Tribunal has held that the absence or lack of enquiry, or not so, is a matter of fact and where the Commissioner on an examination of the record issued definite finding of the fact which clearly exhibited that the assessee may be trading in shares and that he could not be regarded as an investor without further enquiry in the matter, bringing further material on record, the CIT was justified in exercising his jurisdiction under section 263. The Ld. D.R. has also relied upon the decision of th .....

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pass order under section 263 merely because he has a different opinion in the matter. The AO is not required to give detailed reasoning in respect of each and every item of deduction in the assessment order. Where the AO had called for an explanation regarding the claim made by the assessee and the assessee had furnished its explanation, then it cannot be said to be a case of lack of enquiry. In the case of Vikas Polymers (supra) the Hon ble Delhi High Court has held that for exercising powers .....

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us but was also prejudicial to the interest of the Revenue. The Hon ble High Court has observed that the provisions of section 263 when read as a composite whole make it incumbent upon the Commissioner before exercising revisional powers to (i) call for and examine the record and (ii) give the assessee an opportunity of being heard and thereafter, to make or cause to make such an enquiry as he deems necessary. It is only on fulfillment of these twin conditions that the Commissioner may pass an o .....

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hich are already concluded. There must be material on record to show that tax which was lawfully exigible has not been imposed if the claim was allowed by the Income Tax Officer (ITO). On being satisfied with the explanation of the assessee, such decision of the ITO cannot be held to be erroneous simply because in his order he did not make an elaborate discussion in that record. The Hon ble Bombay High Court observed in the said case that when the CIT himself , even after initiating proceedings .....

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hat the Hon ble Delhi High Court in the case of CIT vs. Goetz (I) Ltd. (supra) has elaborately discussed the various case laws regarding the powers of the Commissioner under section 263 including CIT vs. Nagesh Knitwars Pvt. Ltd. (2012) 345 ITR 135 (Delhi - HC) and of the Hon ble Bombay High Court in the case of Gabriel India Ltd. (supra) and also of the Hon ble Delhi High Court in the case of Sunbeam Auto Ltd. (supra) and has reached to the conclusion that the Commissioner should be able demons .....

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sh and show the error or mistake made by the AO making the order unsustainable in law. The matter cannot be remitted for a fresh decision to the AO to conduct further enquiries without a finding that the order is erroneous and the Commissioner further must also satisfy the second limb of the provision that the order is also prejudicial to the interest of the Revenue. The Hon ble Supreme Court in the case of CIT vs. G.M. Mittal Stainless Steel (P) Ltd. (2003) 263 ITR 255 has observed that the sat .....

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the views permissible in law, then the order cannot be treated as erroneous or prejudicial to the interest of Revenue, unless the view taken by the ITO is unsustainable in law. On the other hand, the Ld. D.R. has stressed upon the finding of the Hon ble Supreme Court that where the AO had accepted entry in the statement of account filed by the assessee in the absence of any supporting material without making any enquiry, exercise of jurisdiction by Commissioner under section 263(1) of the Act w .....

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damages to the assessee company. In the return filed, the assessee company claimed the said compensation and damages received as agricultural income. The AO accepted the same. The Commissioner, however, exercising his jurisdiction under section 263 held that the said amount was unconnected with any agricultural operation activity and was liable to be taxed under the head Income from other sources . The matter ultimately travelled to the Hon ble Supreme Court. The Hon ble Supreme Court held that .....

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ven in the case Malabar Industrial Co. Ltd. (supra), the CIT had made enquiries and thereafter concluded that the income received by the assessee on account of compensation damages for extending the period of installments was not an agricultural income. The Ld. CIT, in fact, had examined the contention of the assessee and was of the view that the claim made by the assessee was not right, and that under these circumstances, it was held that the order of the AO was erroneous and prejudicial to the .....

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